Morgan Stanley late Monday became the fourth major securities firm to propose a buy-back of auction-rate securities from retail investors, but the offer was rebuffed by New York Attorney General Andrew Cuomo.

The firm, ranked fourth-largest ARS underwriter according to Thomson Reuters, proposed a series of voluntary actions that would follow the blueprint established in state and federal regulator settlements with Citigroup Global Markets and UBS last week, including repurchasing at par $4.5 billion of ARS from retail investors.

Merrill Lynch also last week proposed a voluntary ARS buyback program, which Cuomo also criticised for failing to contain certain investor safeguards.

But while Morgan Stanley offered to use its "best efforts" to provide "liquidity solutions" for its institutional investor clients, it did not specify the dollar amount of ARS that those investors hold and it did not offer to pay any fines to state and federal regulators.

Morgan Stanley proposed to repurchase at par the ARS held by retail customers with accounts of $10 million or less, beginning Sept. 30 through Nov. 30. Citi and UBS agreed in principle to pay regulators $100 million and $150 million in fines respectively and also offered to help provide liquidity for institutional investors holding a specific amount of ARS.

The firm also offered to reimburse the losses of any retail customers who purchased ARS from it before Feb. 12 and sold the securities before Aug. 11. In addition, Morgan Stanley proposed to provide no-cost loans to investors who need immediate liquidity and to reimburse customers for any interest costs incurred under pervious loans the firm made to them.

Under the proposal, retail clients would be able to contest any consequential damages beyond losses of liquidity in an arbitration process overseen by the Financial Industry Regulatory Authority, and Morgan Stanley would not challenge the existence or amount of those damages.The firm said it would use its "best efforts" to provide liquidity for institutional investors looking to cash out of their ARS that are still frozen with the goal of resolving the liquidity concerns by the end of 2009.

Meanwhile, Wachovia Securities and Missouri Secretary of State Robin Carnahan continued to discuss finalizing a settlement agreement relating to the firm's ARS. A spokesperson for Carnahan said the parties met "well into the night" Monday after beginning talks on Friday. Missouri is the lead state investigating Wachovia, and a settlement is expected to soon be reached that would be similar to agreements reached by Citi and UBS with state and federal regulators.

Cuomo's office sent letters to Wachovia, Morgan Stanley, and JPMorgan Chase on Monday requesting that firms "enter into immediate talks" with regulators to resolve the ARS investigation from New York and other states. The letters shifted the investigation away from the two largest ARS underwriters, Citi and UBS, and expanded it to mid-size underwriters in the ARS market.Other firms are also under investigation.

Raymond James Financial said in a 10-Q Monday that it has been subpoenaed by the Securities and Exchange Commission and Cuomo for information about its ARS deals.

Regulators from Illinois, Georgia, New Hampshire,and Washington are also conducting ARS investigations, but declined to say which firms they were investigating or could not be reached for comment.

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